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Questions You Were Afraid to Ask #10

The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask.  So far, we’ve discussed the essentials of how the markets work, the differences between various types of investment funds, and the ins and outs of stocks and bonds. 

A few months ago, however, an acquaintance of ours asked us a question not about investments but investing.  Specifically, she wanted to know our thoughts on the modern trend of using mobile investing platforms — aka “investing apps.” 

It’s a terrific question, because the use of such apps — and the number of apps available — has exploded in the past few years.  So, in this message, we’d like to continue our series by answering:

Questions You Were Afraid to Ask #10:
What are the pros and cons of investing apps? 

Mobile investing apps enable people to buy and sell certain types of securities right from their phone.  They have provided investors with a quick and easy way to access the markets.  For new investors who are just getting started, these apps have made the act of investing more accessible than ever before. 

That’s a good thing!  Even today, many people only invest through an employer-sponsored retirement account, like a 401(k).  That’s because they may lack the resources, confidence, or ability to invest in any other way.  But not everyone has access to a 401(k).  And while 401(k)s are a great way to save for retirement, many people have other financial goals they want to invest for, too.  Mobile apps provide a handy, ready-made way to do just that. 

Continuing with the accessibility theme, many apps enable you to invest right from your phone, anytime, anywhere.  In addition, many apps don’t require a minimum deposit, so you can start investing with just a few dollars.  Finally, the most popular apps often charge extremely low fees – or even no fees at all – to buy or sell stocks and ETFs. 

Many apps also come with features beyond just trading.  Some apps will help you invest any spare change or extra money, rather than let it simply lie around in a bank account.  Others enable you to invest automatically – daily, weekly, bi-weekly, monthly, etc.  That’s neat because investing regularly is a key part of building a nest egg. 

It’s no surprise, then, that these apps have skyrocketed in popularity.  In fact, app usage increased from 28.9 million in 2016 to more than 137 million in 2021.1  Part of this surge was undoubtedly due to the pandemic.  With social distancing, many used the time to try new activities and learn new skills from the safety of their own home…investing included. 

But before you whip out your phone and start trading, there are some important things to know, first.  Investment apps come with definite advantages…but also some unquestionable downsides.  When you think about it, an app is essentially a tool.  Like any tool, there are things it does well…and things it can’t do at all.  And, like any tool, it can even be dangerous if misused. 

The first issue: the very accessibility that makes these apps so popular is also what makes them so risky.  When you have a tool that provides easy, no-cost trading, it can be extremely tempting to overuse it.  Researchers have found that this temptation can lead to overly risky and emotional decision-making, as investors try to chase the latest hot stock or constantly guess what tomorrow will bring.2  The result: Pennies saved on fees; fortunes potentially lost on speculation. 

The second and biggest issue is that while these apps make it easy to invest, they provide no help with reaching your financial goals.  No app, no matter how sophisticated, can answer your questions.  Especially when you don’t even know the questions to ask.  No app can hold your hand and help you judge between emotion-driving headlines and events that necessitate changes to a portfolio.  No app can help you determine which investments are right for your situation.  Just as you can’t hammer nails with a saw, or tighten a bolt with a screwdriver, no app can help you plan for where you want to go and what you need to get there. 

Take a moment to think about the goals you have in your life.  They could be anything.  For instance, here are a few our clients have expressed to me over the years: Start a new business.  Visit the country of their ancestors.  Support local charities and causes.  Design and build their own house.  Play as much golf as possible.  Volunteer.  Visit every MLB stadium.  Send their kids to college.  Read more books on the beach.  Tour national parks in a motorhome.  Spend time with family.

Achieving these goals often requires investing.  But there is more to investing than just buying and selling stocks.  More to investing than simply trading.  Investing, when you get down to it, is the process of determining what you want, what kind of return you need to get it, and where to place your money for the long term to maximize your chance of earning that return.  It’s a process.  A process that should start now, and last for the rest of your life.  A process that an app alone cannot handle – just as you can’t build a house with only a saw. 

So, our thoughts on mobile investing apps?  They are a tool, and for some people, a very useful one.  But they should never be the only one in your toolbox. 

In our next post, we’ll look at two other modern investing trends. 

1 “Investing App Usage Statistics,” Business of Apps, January 9, 2023.

2 “Gamified apps push traders to make riskier investments,” The Star, January 18, 2022.

Understanding the Market Correction – 2023

You probably saw the news: On October 27, the S&P 500 officially slid into a market correction.

A correction is when the markets decline 10% or more from a recent peak.  In the S&P’s case, the “recent peak” was on July 31, when the index topped out at 4,588.1  On Friday, the index closed at 4,117 – a drop of 10.2%.1 

Market corrections are never fun, and there’s no way to know for sure how long one will last.  Historically, the average correction lasts for around four months, with the S&P 500 dipping around 13% before recovering.2 Of course, this is just the average.  Some corrections worsen and turn into bear markets.  Others last barely longer than the time it took for us to write this message.  (On Monday, October 30, for example, the S&P actually rose 1.2% and exited correction territory.3) Either way, corrections are not something to fear, but to understand – so that we can come through it stronger and healthier than before. 

To do that, we must understand why the markets have been sliding since July 31.  We use the word “slide” because that’s exactly what this correction has been.  Not a sharp, sudden drop, but a gradual slide, like the bumpy ones you see on a playground that rise and fall on the way to the ground.   While the S&P 500 dropped “at least 2% in a day on more than 20 occasions” in 2022, that’s only happened once in 2023, all the way back in February.4    

At first glance, it may seem a little puzzling that the markets have been sliding at all.  Do you remember how the markets surged during the first seven months of the year?  When 2023 kicked off, we were still coming to terms with stubborn inflation and rising interest rates.  Many economists predicted higher rates would lead to a recession.  But that didn’t happen.  The economy continued to grow.  The labor market added jobs.  Inflation cooled off.  As a result, many investors got excited, thinking maybe the Federal Reserve would stop hiking rates…or even start bringing rates down. 

Fast forward to today.  The economy continues to be healthy, having grown an impressive 4.9% in the third quarter.5  Inflation is significantly lower than where it was a year ago.  (In October of 2022, the inflation rate was 7.7%; as of this writing, that number is 3.7%.6)  And the unemployment rate is holding steady at 3.8%.7  But the markets move based either on excitement for the future, or fear of it – and these cheery numbers no longer generate the level of excitement they did earlier in the year. 

The reason is there are simply too many storm clouds obscuring the sunshine.  While inflation is much lower than last year, prices have ticked up slightly in recent months.  (We mentioned the inflation rate was 3.7% in September; it was 3.0% in June.6)  As a result, investors are now expecting the Federal Reserve to keep interest rates higher for longer.  Seeking to take advantage of this, many investors have moved over to U.S. Treasury bonds, driving the yield on 10-year bonds to its highest level in 16 years.  Since bonds are often seen as less volatile than stocks, when investors feel they can get a decent return with less volatility, they tend to move money out of the stock market and into the bond market.

As impressive as Q3 was for the economy, there are cloudy skies here, too.  This growth was largely driven by consumer spending – but how long consumers can continue to spend is an open question.  Some economists have noted that Americans’ after-tax income decreased by 1% over the summer, and the savings rate fell from 5.2% to 3.8%, too.5  Mortgage rates are near 8%, a 23-year high.8  Meanwhile, home sales are at a 13-year low.9  All this suggests that the Fed’s rate hikes, while cooling off inflation, have been cooling parts of the economy, too.

Couple all this with violence in the Middle East, political turmoil in Congress, and a potential government shutdown later in November, and you can see the problem.  Despite the strong economy, investors just aren’t seeing a good reason to put more money into the stock market…but lots of reasons to think that taking money out might be the prudent thing to do.  It’s not a market panic; it’s a market malaise.    

So, what does this all mean for us? 

We mentioned how the markets operate based on excitement for the future, or fear of it.  But that’s not how we operate.  We know that, while corrections are common and often temporary, they can worsen into bear markets.  Furthermore, any decline can have a significant impact on your portfolio, and by extension, your financial goals.  So, while our team doesn’t believe in panicking whenever a correction hits, neither do we believe in simply standing still.  Instead, we’ll continue to analyze how both the overall market – and the various sectors within the market – are trending.  We have put in place a series of rules that determine at what point in a trend we decide to buy, and when we decide to sell.  This enables us to switch between offense and defense at any time.  This, we feel, is the best way to keep you moving forward to your financial goals when the roads are good…and the best way to prevent you from backsliding when they’re bad. 

In the meantime, our advice is to enjoy the holiday season!  Our team will continue to focus on investments, so our clients can focus on why they invest: To create happy memories and live life to the fullest with their loved ones.  Happy Holidays! 



1 “S&P 500,” St. Louis Fed,

2 “Correction,” Investopedia,

3 “Stocks rebound to start week,” CNBC,

4 “S&P falls into correction,” Financial Times,

5 “U.S. Economy Grew a Strong 4.9%,” The Wall Street Journal,

6 “United States Inflation Rate,” Trading Economics,

7 “The Employment Situation – September 2023,” U.S. Bureau of Labor Statistics,

8 “30-Year Fixed Rate Mortgage Average,” St. Louis Fed,

9 “America’s frozen housing market,” CNN Business,


Questions You Were Afraid to Ask #6

Earlier this year, we started a series of posts called “Questions You Were Afraid to Ask.”  We look at a common question that many investors have but feel uncomfortable asking.  Because when it comes to investing, the only bad question is the one left unasked! 

So far, we’ve covered a variety of topics, including:

  • How the Dow Jones, S&P 500, and NASDAQ indices work and which companies they include.
  • How the values of these indices are calculated.
  • How stocks work, and how they differ from bonds.
  • How investment funds work, including the differences between passive and active funds.
  • The pros and cons of mutual funds, exchange-traded funds, and hedge funds. 

As you can see, when it comes to investing, there’s a lot to know, a lot to consider, and a lot to choose from.  And while choice is always a good thing, many investors often come to us with their heads spinning because they’re not sure where to start, what to do, or which option to choose.  They all come with some variation of the same question.  The question we’re going to answer right now. 

Questions You Were Afraid to Ask #6:
How do I know which investment options are right for me?

When it comes to this question, we have good news and bad news. 

The bad news is that there is no one-size-fits-all answer. 

The good news is that there is no one-size-fits-all answer. 

Yes, you read that right. 

To illustrate what we mean, think about your clothing for a moment.  Do you buy one-size-fits-all attire?  Of course not – and there’s a reason for that.  “One-size-fits-all” wouldn’t look very good.  It wouldn’t feel very good.  And it simply wouldn’t work for every person and every lifestyle. 

In life, we have a variety of different clothes we can choose from.  We make those choices based on several factors.  Climate: pants or shorts.  Employment: jeans or slacks.  Occasion: a day at the beach or a day at a wedding.  Personality: colorful vs dark, brazen vs muted.  Figure: from extra-small to extra-large.  You choose your clothes – and your style– based on what’s right for you.  Based on your wants, your needs, your nature.  Investing, believe it or not, is much the same.  There is no one-size-fits-all.  No single “best” option.  Only the best for you, based on your wants, your needs, your nature. 

This might seem like a no-brainer, but it’s critical all the same.  That’s because, as an investor, you will often hear the media say otherwise.  You will hear people claim that the Dow is more important than the S&P (or vice versa).  That stocks are better than bonds, or bonds are safer than stocks.  That passive is better than active (or vice versa), or that ETFs are always better than mutual funds (or vice versa). 

As we’ve seen, the truth just isn’t that simple. 

In these posts, we’ve answered six questions many investors are afraid to ask.  Now, we have six more for you to consider.  Six questions you must not be afraid to ask.  Questions only you can answer.     

Those questions are as follows: Who, What, When, Where, Why, and How. 

Who am I?  Are you cautious by nature or a risk-taker?  Are you a family-oriented person, or more of a lone wolf?  An adventurer or a caretaker?  Someone with a few simple wants, or big, bold dreams?  Or – as many people tend to be – are you a mixture of all these things? 

What kind of lifestyle do I want?  Simple or extravagant?  Always trying new things, or staying in your comfort zone?  One focused on work and personal accomplishment, or one focused on family and community?  Or again – and I can’t stress this too much – a mixture of these things, depending on what stage you’re at in life? 

When will I most need money?  Do you need it soon because you’re buying a new home or starting a new business?  Or do you need it later when you’re about to retire? 

Where do I see myself in ten years?  Or twenty?  Life is all about change and growth.  That means you need to ensure you’re investing for long-term growth to reach your long-term goals. 

Why do I need to invest?  To help send your kids to college?  To retire?  To see the world?  To give to charitable causes?  To feel like you always have a safety net? 

How will I pay for retirement?  This is key.  Because, regardless of your other goals, there’s probably going to come a time when you want to stop working.  But you can’t just pick a day to not show up at work.  Retirement creates a massive lifestyle change, one that will be quite upsetting to your finances if you don’t prepare for it. 

It’s these questions that should determine the right investment options for you.  The types of assets you invest in.  How much risk you take on.  Whether your portfolio is simple or complex.  Active versus passive.  You get the idea.

So, here’s our suggestion: Take some time to think about these questions.  Then, communicate your answers with a professional you trust.  Together the two of you can create an investment plan that’s as specific to you as the clothes you wear.  A plan designed to get you where you want to be.  We hope you’ve enjoyed learning a bit more about how investing works.  We hope we’ve been able to answer some questions you may have pondered over the years.  Most of all, we hope you can use this information as a springboard to ask more questions down the road.  After all…

When it comes to investing, the only bad question is the one left unasked!

Questions You Were Afraid to Ask #5

And…we’re back!  A few months ago, we started a series of letters called “Questions You Were Afraid to Ask.”  Each month, we look at a common question that many investors have but feel uncomfortable asking.  Because when it comes to investing, the only bad question is the one left unasked! 

In our last post, we looked at two categories of investment funds – passively managed funds and actively managed.  Both come with their own pros and cons.  But regardless which categories you choose to invest in, there are many types of funds within those categories.  This month let’s look at three of those types.  This is important information to know, because many IRAs and 401(k)s will give you the option of choosing from at least two of them.

Questions You Were Afraid to Ask #5:
What Differentiates Mutual Funds, Exchange-Traded Funds, and Hedge Funds?

Let’s start with mutual funds, one of the oldest and most common ways that people invest.  Here’s how the Securities and Exchange Commission (SEC) defines mutual funds:

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.1

As we’ve already covered, mutual funds can be either actively managed or passively managed.  Regardless of which umbrella the fund falls under, though, many investors flock to mutual funds because they offer several potential benefits:

  • Simplification.  Mutual funds can simplify the process of investing because instead of devoting time to researching dozens – or even hundreds – of individual companies to invest in, the fund does it for you.  (Note, of course, that you or your financial advisor should still research which fund is right for you.) 
  • Diversification.  Mutual funds often invest in a wide range of companies and industries to meet the funds stated objective. This could lower your overall risk.  This means that if one company/industry does poorly, you may not experience the same kind of loss you would if you invested all your money in that company or industry.

There are potential issues with mutual funds, though.  For example, sometimes, it can be difficult to understand what or how the fund actually invests  (Mutual funds can differ drastically depending on their objectives, investing style, time horizon, and other factors.)  Mutual funds are required by law to provide a prospectus to investors that explains how the fund works, but if you don’t know what you’re looking at, this information may confuse more than enlighten.  This is why it’s important to do your homework.  (And by the way, everything in this paragraph is true for ETFs and hedge funds, too.) 

Mutual funds can also sometimes come with more expenses than other funds, too. They might include management fees, purchase fees, redemption fees and tax costs.  These expenses can eat into your returns, thereby lowering your overall profit. 

Finally, mutual funds may not be a great choice if immediate liquidity is a high priority.  All mutual fund trades run at the end of day. So, for example, if you wanted to sell a mutual fund at the beginning of the day, hoping to avoid what you think the market will do, you will still get the end of day price. For this reason, some investors turn instead to…

Exchange-Traded Funds

ETFs, as they are often called, can be actively managed.  More often, however, they track the companies in a specific index, just like an index fund.  (See our last post for more information on index funds.)  Otherwise, ETFs differ from mutual funds in a few ways.  For one thing, the shares each investor has in an ETF can be traded on the open market.  That means you can buy or sell your shares in an ETF just like you would an individual stock.  You can’t do that with regular mutual- or index funds.  That’s a big advantage for investors who value flexibility and liquidity. 

Most ETFs also come with lower expenses than mutual funds.2 ETFs fully disclose all holdings held. This makes it easier to see exactly what you are investing in. It also makes it easier to see where you have overlap.

But of course, nothing’s perfect.  Since ETFs can be traded like common stock, that might lead to trading too often. You may find yourself paying more than you anticipated in trading fees.  Then, too, some ETFs are thinly traded, meaning there’s just not a lot of activity between buyers and sellers.  This could make it difficult to sell your shares. 

Hedge Funds

Most people will never invest in a hedge fund.  They’re generally not an option when investing through a 401(k) or IRA.  But we include them here because we often get asked about them – and for good reason!  You often hear about hedge funds in the media, and they’re the subject of multiple films.  While mutual funds and ETFs can be either passive or actively managed, hedge funds are always active.  The idea behind hedge funds is that the manager can use all sorts of strategies and tactics to help investors beat the market while “hedging” – hence the name – against risk.  Hedge funds often invest in non-traditional assets beyond stocks and bonds, too.

The reason hedge funds are not an option for most investors is because of the huge cost associated with them.  Legally, to invest directly in a hedge fund you must be an accredited investor. Meaning, you must have a net worth of at least $1 million or an annual income over $200,000 to invest in one.  Plus, you must be willing to stomach paying all sorts of fees that are much higher than your average mutual fund.  For these reasons, while hedge funds may be right for some people, they’re simply not necessary for the average investor to save for retirement or reach their financial goals.     

Whew!  We’ve thrown a lot of information your way over the past few months, haven’t we?  That’s why, for our final post of the series next month, we’re going to look at the most important question of all: How to know which investment options are right for you.   Have a great month!

1 “What are Mutual Funds?” Securities and Exchange Commission, 2 “ETFs vs Mutual Funds,” Kiplinger,

Questions You Were Afraid to Ask #4

A few months ago, we started a series of  posts called “Questions You Were Afraid to Ask.”  Each month, we look at a common question that many investors have but feel uncomfortable asking.  Because when it comes to your finances, the only bad question is the one left unasked! 

In our last post, we looked at the differences between stocks and bonds.  But these days, most “regular” investors – i.e., non-professional – have neither the time or expertise to research and select individual stocks.  (Or bonds, for that matter.)  Furthermore, doing so can subject your portfolio to increased risk and unexpected tax consequences.  That’s why investors usually rely on a different method: Putting their money into some type of fund

An investment fund is when a group of investors pool their money to invest in the same portfolio of stocks or other securities.  There are two major advantages of funds: Cost and simplicity.  By pooling your money with other investors, you can gain access to a diverse basket of stocks for less than if you bought each stock individually.  Funds also make it simpler for investors to get started, since they don’t have to research and select each individual company. 

These days, most people invest either through an employer-sponsored retirement plan, like a 401(k), or an Individual Retirement Account (IRA).  Either way, this usually involves selecting between one or more funds to invest in.  But here lies the problem for many people, even the financially savvy: How do you know which funds to choose?  And what’s the difference between them, anyway?    

Both in this post, and in next month’s, we’re going to address that issue.  We’ll start with one of the most common questions I get, especially from beginning investors:

Questions You Were Afraid to Ask #4:
What’s the Difference Between Passively Managed and Actively Managed Funds?

If you’re investing in, say, an IRA, most of the fund choices you’ll see will fall under one of two categories: Passive vs Active. 

Let’s start with the latter.  An actively managed fund is exactly what it sounds like: A fund where a manager takes an active role in selecting which securities to buy or sell, and when. 

Different managers have varying styles and philosophies.  For example, some may specialize in finding companies they believe are undervalued, which means they can be bought at what is believed to be a good price. 

Others may try to find companies they think are likely to grow by a significant amount.  Some managers may specialize in certain industries or market sectors.  You get the idea.  Either way, with active management, you are paying for one of two things:

  • The possibility that the fund will “outperform” the market.  This means the fund could do better over a specified period than a benchmark index – like the S&P 500 – that it measures against. 
  • The possibility that the manager will be able to protect you against undue risk or limit losses during times of market volatility.  (Note that this idea more generally fits the purpose of hedge funds than the standard mutual funds you’ll usually see in your IRA or company 401(k).  We’ll cover these types of funds next month!) 

The possibility of outperforming the market comes with some tradeoffs, however:

  • Actively-managed funds often come with more – and higher – fees than passively managed funds.  That’s because the manager must charge for his or her services. 
  • While it’s possible for a manager to outperform, it’s also possible to “underperform.”  When that happens, you are essentially paying more for less. 

Now, let’s look at passively managed funds.  Here, there is no “active” or research-based management decisions to the buying or selling of holdings.  Instead, the fund invests in a specifically designed portfolio and then stays put.  The fund may “rebalance” at some other set time frame, often quarterly or annually. This is to reset to its original objective or to match its index better. Otherwise, everything is held for the long-term. 

These days, many passive funds are index funds.  This is when the fund’s portfolio is built to try to match a target index, like the S&P 500.  So, if you essentially want to replicate a broader stock market, again like the S&P 500, index funds could be the way to go. 

Passive funds come with the following advantages: 

  • Typically, much lower cost, especially with index funds.  Because there’s nobody actively picking stocks, the fund could come with fewer expenses, and thus, lower fees. 
  • However the target index performs, with occasional variances, that’s how you’re likely to perform, too.  Given that indices like the S&P 500 have historically risen in value over the long-term, that could make index funds a good option for those who want to invest and forget it for a long period of time.

On the other hand…

  • There’s little chance of outperforming the market.  That’s an issue if you need more aggressive returns.  In addition, index funds come with no specific protection against extreme volatility.

Note that when you make your selections in a 401(k) or IRA, you can tell whether a fund is active or passive by reading its summary.  (More on that in a future post.)  We should also note that passive vs active doesn’t have to be a binary choice.  Many investors take advantage of both options in their portfolio! 

While most funds are either active or passive, there are many types of funds within those two categories.  Next month, we’ll look at a few of those types, including mutual funds, hedge funds, and exchange-traded funds. 

Have a great month!

Investing Like Water

Lately we’ve been thinking about water.  There are water problems everywhere – too much in the southeast and not enough out west.  Our thoughts are with you.

We know thinking about water might seem like an odd thing for financial professionals to think about. Especially during times like these, with interest rates on the rise, inflation remaining stubbornly high, and volatility dominating the markets. 

But, as investors, this is exactly the time to think about water.

To illustrate what we mean, consider this quote, usually attributed to the great Chinese philosopher, Lao Tzu:

“Consider that nothing is softer or more flexible than water, yet nothing can resist it.” 

Even in the best of times, many investors are rigid and inflexible in their approach.  It’s in the hardest of times that this rigidity comes back to bite them.  For instance, many investors take the approach that they must stay invested all the time.  Since the whole point of investing is to grow your money, they are constantly in growth mode. Though, investors like this simply fear missing out on future growth.  As a result, they are constantly climbing towards the top of the mountain, even when the cliff becomes straight and sheer, without a single ledge or toehold to cling to. 

As of this writing (9/30/2022), the S&P 500 is down 24.8% for the year and the NASDAQ is down 32.4%. For the first time since 2009, the first three quarters of 2022 have all been negative. It’s been a very challenging year!

Perhaps that slide will continue, perhaps it won’t.  We don’t know; no one does.  What we do know is that, when the cliff gets sheer, it can be a long drop down to the bottom. 

Other investors, perhaps burned by this approach, become inflexible in another way.  They sit out the markets permanently, or invest only in bonds, or some other approach that makes them feel “safe”.  Better to risk gaining nothing than to risk losing anything.  As a result, these investors never move at all.  They simply stay where they are…even if where they are isn’t where they want to be. 

Despite the volatility we’ve seen this year, the S&P 500 is up nearly 60% since March of 2020.1 Perhaps that number will go up, perhaps it won’t.  We don’t know; no one does.  What we do know is that we’d hate to miss out on that kind of journey. 

Now consider water.

Have you ever seen a major river from above?  If so, you’ll have seen how it always takes the easiest course.  Sometimes it flows straight; sometimes it bends and curves back on itself.  Sometimes it flows fast and strong; sometimes, it barely moves at all.  It cannot fight against gravity, so it never tries to go uphill.  But it always keeps moving, from source to destination. 

When you think about it, our entire investment philosophy here at Minich MacGregor Wealth Management is based on emulating water.  As you know, we use a combination of technical and fundamental analysis to help us find and follow market trends.  Sometimes, the markets trend up.  Sometimes, the markets trend down. Sometimes, the trend is short; other times, it’s long.  Sometimes, different sectors of the markets will trend in different directions.  (This is why we don’t try to invest in everything, but choose our investments based on their relative strength compared to other, similar investments.) 

Whichever way the trend goes, though, we don’t fight it.  Like water and gravity, we know that you can’t fight it.  Instead, we adapt to it.  When the trend is down, we may move into cash to protect against undue risk.  When the trend is up, we do the opposite.  Sometimes, this shift may occur month to month or even week to week.  But we are always on the lookout for opportunities to invest your money where it will do the most good.  Like water, we try to follow the path of least resistance, adapting our approach to the lay of the land.  Sometimes we will be in growth mode; other times we will be defensive.  Just as water will speed up or slow down, flow straight or curve backward, sometimes we will, too. 

Experience has convinced us that this approach – being flexible and adaptable – is the surest way to your destination.  By not trying to constantly scale the cliff, we do not risk the fall.  And by not being afraid to move, we do not risk forever staying in one place.  By being like water, we stay soft, flexible…and irresistible. 

The reason we’re telling you all this, is because investors have so much noise to contend with right now.  On Tuesday, September 13 alone, the news came out that the inflation rate for August was at 8.3%, higher than many experts hoped for.2 This means it’s even more likely that the Fed will continue to raise interest rates, which is hardly welcome news for most companies.  The result?  The Dow fell over 1100 points.2  For rigid, inflexible investors, numbers like this represent a major obstacle.  Some will crash into it in their attempts to plow through.  Others won’t even bother trying.  For us, however, it’s merely another data point. 

Over the coming weeks, it’s possible we’ll have more days like September 13. We don’t know how long this volatility will continue; no one does.  Either way, our strategy will help us get around it.  So, while the headlines might seem scary, we hope you take comfort in the fact that we’ll continue adapting to changing market trends with great flexibility, all based on your needs and goals.

We’ll be like water. 

1 “S&P 500 Historical Data,”,

2 “Stocks Fall on Hotter-Than-Expected Inflation Data,” The Wall Street Journal,

Questions You Were Afraid to Ask #3

A few months ago, we started a new series of posts called “Questions You Were Afraid to Ask.”  Each month, we look at a common question that many investors – especially new investors – have but feel uncomfortable asking.  Because when it comes to your finances, there’s no such thing as a bad question!

In our last post, we looked at why some stock market indices – like the Dow – are valued much higher than, say, the S&P 500.  But what is a stock, exactly?  How does it compare to other kinds of investments?  Even folks with a lot saved for retirement aren’t always sure.  You see, many Americans build wealth and save for retirement through their employers.  Maybe they take advantage of a company 401(k) or are awarded company stock as part of their compensation.  Either way, they don’t spend much time thinkingabout their investment options, because it’s simply not required in order to start investing. 

As a result, many Americans may have heard of different investment types – or asset classes, as they are also known – without truly knowing how they differ, or what the pros and cons of each type are.  So, over the following three months, we’ll break down some of the most important investment types, starting with the two most well-known.  Without further ado, let’s dive into:   

Questions You Were Afraid to Ask #3:
What’s better, stocks or bonds?

When you purchase a bond, you are essentially loaning a company, government, or organization money.  When you buy stock, you are purchasing partial ownership in a company.  For this reason, stocks are equity investments while bonds are debt investments.  Before we answer Question #3, let’s examine how each type works.   

How Stocks Work

When you buy a company’s stock, you buy a share in that company – and the more shares you buy, the more of the company you own.  Generally speaking, stocks can be held for as short or long a time as you wish, but many experts recommend holding onto your shares for longer-term if you anticipate their value will rise over time. 

For example, let’s say ACME Corporation – which makes roadrunner traps – sells their stock for $50 per share.  You invest $5000 into the company, which means you now own 100 shares.  Now, fast forward five years.  ACME’s business has grown, investors like what they see, which consequently puts their stock in higher demand.  As a result, the stock price is now $75 per share.  Because you own equity in the company, you benefit from its growth, too – and your investment is now worth $2,500 more, for a total of $7,500.    

The Pros and Cons of Investing in Stocks

Every investment has its strengths and weaknesses, and stocks are no exception. The single biggest benefit to investing in stocks is that, historically, they outperform most types of investments over the long term. Because stocks represent partial ownership in a business, finding a strong company that performs well over the course of years and decades can be a powerful way to save for the future. Additionally, stocks are a fairly liquid investment. That means it can potentially be easier to both buy and sell them whenever you need cash.  Many other investment types, like bonds, can be more difficult or costly to sell, in some cases locking you in for the long term.

But these pros are just one side of a double-edged sword. You see, with the possibility of a higher return comes added risk. While the stock market has historically risen over the long-term, individual stock prices can be extremely volatile, climbing and falling daily, sometimes dramatically. For example, if a company underperforms relative to its expectations, the stock price can go down. Sometimes, companies can even fail altogether, and it’s possible for investors to lose everything they put in. As the saying goes, risk nothing, gain nothing — but it’s equally true that if you risk too much, you can leave with less.

Furthermore, to actually realize any gains you’ve made (or cash out a potential increase in value), you must sell your stock, which can trigger a significant tax bill. 

How Bonds Work

Bonds potentially rise in value and might be sold for a profit, but generally speaking, that’s not what most investors are looking for.  Instead, bondholders are hoping something a bit more predictable: Fixed income in the form of regular interest payments. 

As previously mentioned, bonds are a loan from you to a company or government.  That loan might last days or years – sometimes even up to 100 years – but when the bond matures, the company pays you back your initial investment.  In the meantime, the company typically pays you regular interest, just like you would when you take out a loan.  Depending on the type of bond you buy, these payments can be annual, quarterly, or monthly.  Interest payments are why investors often look to bonds as a source of income.

The Pros and Cons of Bonds

Income isn’t the only “pro” when it comes to bonds.  Bonds tend to be less volatile than stocks.  Also, since the company that issued the bond is technically in your debt, you would be among the first in line to get at least some of your money back even if the company enters bankruptcy.  That’s not the case with stocks. 

But just because bonds are less volatile doesn’t mean they’re risk-free.  Bonds may rise or fall in face value as interest rates change.  Face value is typically calculated by seeing what others would likely be willing to pay to take over that debt from you. So, for example, if you bought a bond in Year 1 only to see interest rates go up in Year 2, the value of your bond will likely fall.  That’s because you are missing out on the higher interest rate payments you would have had if you bought the bond in Year 2 instead.  That’s important, because if you wanted to sell your bond before it reached maturity, you would probably have to settle for a lower price than what you initially paid.         

Stocks and Bonds Together

As you can see, stocks and bonds each have different advantages and disadvantages.  That’s why neither is “better” than the other.  It’s also why, for many investors, the real answer is, “Why not both?”   

Far from being competitive, stocks and bonds are actually considered complementary.  That’s because each brings things to the table the other doesn’t.  Furthermore, stocks and bonds are what’s known as non-correlated assets.  That means they don’t necessarily move in tandem.  For example, say the stock market goes down.  Just because stocks are down doesn’t mean bond values will fall, too. In fact, it’s possible they go up!  And of course, the inverse is also true. 

(Understand that this kind of non-correlated movement is not guaranteed.  The point is that allocating a portion of your portfolio to both stocks and bonds is a good way of not keeping all your eggs in one basket.) 

Obviously we could go on for pages and pages on the ins and outs of stocks and bonds.  This post just scratches the surface.  But hopefully it gives you a better idea about how these two important asset classes work and why people should consider both when it comes to investing for the future. 

Of course, choosing which stocks and bonds to buy is an entirely different subject…and it’s why next month, we’ll break down how some investors get around this problem by putting their money in funds.    

In the meantime, have a great month!      

Bear Market Update

The S&P 500 has recently slid into a bear market due to inflation and fears of a recession. As expected, the Fed announced a 0.75% interest rate hike.1  That may not sound like much, but it’s the largest single rate increase since 1994. 1  To keep you up to date on what’s going on, let’s do a quick Q&A. 

Q: What, exactly, did the Federal Reserve do?

A: Raise the “Federal Funds Rate”.  This is the interest rate that banks pay each other for overnight loans.  When the rate goes up, it costs more for banks to loan each other money. In response, banks raise their own interest rates. That’s why, when the Federal Reserve raises the federal funds rate, it eventually affects consumers and small businesses whenever they apply for a loan.  Specifically, the Fed raised the rate up 0.75% to approximately 1.6%.1 

Q: How did the markets react?

A: Initially, the markets rose soon after the announcement, as it was expected, and because many experts believe it’s necessary to tamp down on inflation.

The day after, though, the markets continued their slide.  The S&P 500 and NASDAQ are firmly in bear market territory, and the Dow is getting close. 

The reason for this is because the Fed also announced that a second 0.75% rate increase is possible in July.  While higher interest rates are a proven tool for fighting inflation, each rate hike increases the odds of a recession, even if it’s a small one.  The markets dropping further is essentially investors pricing in the likelihood of more action from the Fed…and a greater chance of an economic downturn. 

Q: What is the Fed hoping to achieve here?

A: When the Fed announced the rate hike on Wednesday, they also revealed something else: Their economic outlook for the rest of 2022.  The Fed’s hope is to achieve what’s called a “soft landing.”    This is where economic growth slows, but a full-blown recession is avoided.  There’s some justification for this hope.  After all, if you remove inflation from the equation, the economy is actually in pretty good shape.  The unemployment rate is at 3.6%, which is almost back to where we were in January 2020 before COVID hit.2  And consumer spending – the bedrock of our economy – remains strong.  It was to shore up the economy that the Fed dropped interest rates in the first place.  Now, the thinking goes, that mission is complete, which means it’s time for the Fed to pivot to the second prong of their “dual mandate”: stabilizing prices.  (The first prong is stable employment.)

Unfortunately, soft landings are historically difficult to achieve, and the most recent data suggests an economic slowdown may already be happening.  Consumer sentiment is dropping, retail sales numbers have dropped slightly over the last month, and while the economy continues to add jobs, it did so at a slower pace in May.1  Even the Fed admits that the unemployment rate will likely go up over the next few years.  (Moving from 3.6% to 4.1%, according to their projections.1

Q: So, what should we do moving forward?

A: The main thing right now is to remember that the markets move based on what investors expect to happen, not what is happening right now.  At any point, those expectations could change.  Every new bit of economic data between now and the Fed’s next meeting in July will be carefully scrutinized.  That’s why it’s never a good idea to overreact to the day-to-day swings in the market, even if they seem significant.  The sentiment that drives the market today may be completely different tomorrow. 

Remember: We endured both a bear market and a recession not very long ago.  Keeping the long-term in view helped us not only get through rough times but take advantage of a tremendous recovery. 

Of course, if you have any immediate financial goals, or need access to some of your money in the short-term, let us know and our team will help you promptly.  And of course, if you have any questions or concerns about your portfolio, don’t hesitate to reach out.  That’s what we’re here for!     

As the summer progresses, we’ll keep you apprised about what’s going on in the markets.  In the meantime, enjoy the warmer weather knowing that we are here to do everything we can to keep you working toward your financial goals.      

1 “Fed hikes its benchmark interest rate by 0.75 percentage point, the biggest increase since 1994,” CNBC,,E,X,T&H=46cf2e46f2cc5f68e79a2d364fd4ec5052f5340f

2 “The Employment Situation – May 2022,” Bureau of Labor Statistics,,E,X,T&H=0c145dfe397266fae066dd051f8fdcdbef3da5e2

Four Keys to the Market

There are four keys to doing well in the markets.

This is not one of those penny stock ads or any “Get Rich Quick” schemes.

These keys will, however, help you stay disciplined and progressing towards your goals. So, without further ado, here they are:

✈️  Set a destination in mind. Meaning, what is the point of your investments? By when will you need your investments to pay for what you need?

📈  Decide on the acceptable level of risk for your journey to your destination. Investments have the potential to lose value. Those investments that sound amazing because they went up 100%, also tend to have the potential to go down 50% or more. Really, this question of risk comes down to, what level of volatility is needed for your plan to be successful? Remember, volatility is just a measurement of speed at which the price moves. That movement includes rising prices.

📜  Follow rules to your buying and selling of securities, not headlines. In other words, remove the emotions from your investment decisions. It is a lot easier said than done, which is why having a good advisor is tremendously helpful. Make sure your advisor has a rules-based approach to their investments.

💼  Always do your research. Don’t rely on “that guy at work” for your investment advice. Don’t rely on that one headline either. We have found that by doing your own research, you automatically remove a lot of emotion from the buy or sell decision.

There you have it. Four keys to investing in the markets. Of course, this is not an exhaustive list, but these are ones we find are missed by average investors. If you don’t feel you have all four in place with your plan, please give us a call.

Financially Savvy Investor

These days, most people can’t afford to reach their financial goals – like retirement – on their employment income alone.  The cost of living is simply too high.  That’s why investing is so important: Because it allows you the opportunity to put your money to work for you.  Through investing, you can potentially grow your money and seize opportunities for additional income. 

But it’s not enough to simply throw your money at the stock market.  You must invest wisely if you’re to reach your financial goals.  You must be a financially savvy investor. 

To help, we’ve created a special infographic called Four Steps to Becoming a Savvy Investor.  Please take a minute to look it over.  These steps are all very simple to understand, but they’re critically important.  If you have any questions about them, or if you need any help applying them, please contact us for further information. 

We hope you find this infographic helpful.  Again, please contact us if there is anything we can do to help you invest for your future. 

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